- Pub disposals continue
- Net debt remains high
Research from Deloitte paints a mixed picture for pub and bar demand. The category was the worst leisure spending performer in the first three months of 2024 in the professional services firm's latest consumer tracker, but the prospect of warmer weather ahead is expected to provide a boost. This could be important for JD Wetherspoons (JDW) and, while sales growth may have slowed, the pub chain's third-quarter update was an encouraging one as it guided that full-year profit would come in at the top end of market expectations.
Like-for-like (LFL) sales were up 5.2 per cent in the 13 weeks to 28 April, compared with a year-to-date position of 8.3 per cent. The slowdown is unsurprising given increasingly challenging comparatives, and LFL sales are now 15 per cent ahead of pre-pandemic levels.
Total year-to-date sales growth of 6.5 per cent was more muted due to an ongoing site disposal programme. The 18 pubs sold or surrendered to landlords so far this year have brought in net cash of £6.8mn, and there are 17 pubs still up for grabs.
Net debt sat at £685mn at the end of April, down £10mn since January.
Chair Tim Martin is in an upbeat mood. He flagged that "the gods of fashion have smiled upon Guinness, previously consumed by blokes my age, but now widely adopted by younger generations" and pointed to free Lavazza coffee refills as the cause of "spontaneous exhibitions of breakdancing among retired customers".
The share price remains well below pre-pandemic levels, despite progress over the past 18 months. Dividends are not expected to return until later this decade. Higher drink prices aid the margin outlook, but labour cost headwinds remain challenging.
The valuation has become more reasonable, with the shares trading at 15 times forward consensus earnings against a five-year average of 29 times.
Last IC view: Hold, 729p, 22 Mar 2024
